Under fixed rates, which one of the following statements is the most accurate?
A) Fiscal policy can affect output, employment and international reserves at the same time.
B) Fiscal policy can affect only employment.
C) Fiscal policy can affect only international reserves.
D) Fiscal policy can affect only output and employment.
E) Fiscal employment can affect only output and international reserves.

Question

Quizplus · Accepted Answer

Under fixed exchange rates, fiscal policy can influence output and employment through changes in government spending or taxation, and it can also affect international reserves as the central bank may need to intervene in the foreign exchange market to maintain the fixed rate.

Under Fixed Rates, Which One of the Following Statements Is